What Is Blockchain Technology And How Does It Work?

Blockchain is perhaps the most revolutionary invention after the internet. This shared distributed ledger technology performing digitally signed transaction ensures integrity and authenticity of the transaction. This technology has grabbed the attention of a wide range of business and individuals. You might have seen a lot of people talking, reading and sharing their knowledge about Bitcoin and other cryptocurrencies. All these cryptocurrencies came into existence because of the Blockchain technology. A variety of industries are showing interests and reaping benefits of this distributed ledge technology.

Now let’s see what Blockchain technology is, how it works and why investors are so enthusiastic about Bitcoin and other digital coins based on Blockchain technology.

What is Blockchain?

It is actually structured data representing a record of a transaction. This structured data represents a financial ledger entry. Every transaction over Blockchain is digitally signed. This digital signature makes sure that the transaction is tamper proof and its authenticity is guaranteed. The distributed ledger and all transactions taking place over this ledger are highly integrated.

However, all entries on these distributed digital ledges are highly distributed among an infrastructure consisting of many nodes and layers. This distributed ledger makes consensus about the current state of transactions available at any instance. There are multiple copies of authenticated ledgers well-distributed.

How Does A Blockchain Work?

Whenever a new transaction in a Blockchain is created or an existing transaction is edited, most of the nodes in that Blockchain execute some algorithms. These algorithms are deployed to evaluate and verify the history of the proposed individual block. The consensus of the majority of the nodes after verifying the history and validity of the signature, the ledger accepts the new block of transactions. A new block is added to the chain.

In case the majority of the nodes do not come to a consensus, the transaction is denied and the block is not added to the chain of transactions. A Blockchain works as a distributed digital ledger because of this distributed consensus model. There is no central unifying authority that verifies the authenticity and validity of a transaction.

Here Is How Blockchains Can Be Structured

This distributed digital ledger is configured in a way to use different mechanisms for achieving consensus on transactions. This also defines all the known participants in the chain. Bitcoin, Ethereum and Ripple are the three most popular and expensive cryptocurrencies. So, let’s consider Bitcoin as an example. Bitcoins makes use of an anonymous public ledger and anyone can participate in this ledger. There are many organizations building and using private Blockchain. People have to take permission before participating and the organization controls the activities of the participants.

Benefits of Blockchain

Due to the number of benefits Blockchain has, a number of constituencies get a variety of reasons to get attracted by Bitcoin. There is no central authority required in Blockchain making it an ideal ledger. It also facilitates easy settlements for joint ventures. Affiliate relationships can be created excluding provision for a manager or arbitrator.

There are computers involved in the Blockchain. There are algorithms for verifying and settling transactions. The need for settlement agents is eliminated. This eliminates a lot of unnecessary costs while speeding up verification, settlement, recording and execution of transactions.

As transactions are digitally signed and history is verified, this makes it difficult for bad actors to cause fraud and any other similar problem that can be very expensive to remove and resolve. The cryptographic integrity of pending transaction and multiple nodes examining the architecture of the Blockchain, this technology is protected against threats and malevolent use of this technology is also extremely difficult. Blockchain keeps track of how assets are moving through a supply chain.

Is There Any Downside Of Blockchain Technology?

The blockchain is an open source project which makes it very hard to apply. This is the biggest problem with this revolutionary technology. It is difficult to integrate all the functionalities into one practical application

Hyperledger

It is a project unifying all the existing open source Blockchain approaches. The goal is to

“create enterprise-grade, open source, distributed ledger frameworks and code bases to support business transactions.”

– official Hyperledger website

There are various other open source projects on the internet. How is this project different from other projects? This project is getting a massive participation from the industry. There are big names behind this project including

The current goal of Hyperledger is to combine following three projects:

Rippled

IBM’s Open Blockchain

Digital Asset’s Hyperledger

Rippled

This is a public distributed ledger for handling cross-currency payments. Rippled is written in C++.

IBM’s Open Blockchain

This is a low-level fabric implementing the smart contract, digital assets, cryptographic security, consensus-oriented networks and record repositories.

Digital Asset’s Hyperledger

Digital Asset’s Hyperledger is all set for deploying Blockchain server with a client API that will be used by financial services enterprises. It makes use of an addition-only log of transactions designed to be replicated. These are replicated across multiple organizations with no nexus of control.

IBM is contributing a lot of code to the Hyperledger project as it believes that open technology offers the best way for creating a truly applicable implementation of Blockchain that will be of great use for today’s business and enterprise market. In the eyes of IBM, this technology can make the internet more aware of commerce.

Jerry Cuomo, vice president Blockchain, IBM says –

“As a broad, open initiative inclusive of many different Blockchain experts, the Hyperledger Project will advance the open Blockchain standard for uses across many industries,”

“By focusing on an open platform, there’s no limit to the types of applications and frameworks that will one day be built on top of it.”

“You need a fabric that allows for lots of competition on platforms and huge competition on solutions. We need to evolve the Internet to become economically aware and this Internet is not going to be an application, it will be a fabric.”

John Wolpert believes that the project Hyperledger builds this fabric by putting the best technologies together.

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